• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

ECB Calls Spain's Bluff... Or Does It? And Did Europe Just Check To The Fed?

Tyler Durden's picture


While most of the early action today was driven by a baseless rumor that the ECB would announce some magical recapitalization plan that would put everything back into its normal (by this we mean somehow sustainable) place, the alleged time when Draghi would make such an announcement came and went... and nothing. Instead, the ECB, using the FT as its mouthpiece, came out late in the day, however not with news that Europhiles wanted to hear. As a reminder, as part of the proposed Bankia nationalization scheme, Spain would inject Spanish debt into the insolvent entity, thereby allowing it to pledge the debt for ECB repo cash. Or so the thinking went. This was, in effect, Spain's bluff. The ECB has just called it.

From the FT:

A Spanish plan to recapitalise Bankia, the troubled lender, by indirectly tapping the European Central Bank for cash, was bluntly rejected as unacceptable by the ECB, European officials said.


News of the rejection came as Spain faces elevated borrowing costs in the bond markets, tries to persuade investors it can contain problems in a banking sector weighed down by €180bn of bad property loans and, on Tuesday, saw its central bank governor stand down early.

Instead, it seems that the ECB is a fan of the old fashioned type of capital raise: one involving equity, and cash, and none of this newfangled repo monetary ponziness. Of course, the only bank that did try a capital raise by way of a rights offering in 2012 was Italian UniCredit which plunged by nearly half in the days following the announcement as a market test would clearly indicate it was woefully undercapitalized and its equity may well be worthless. This, however, does not seem to bother the ECB:

The ECB told Madrid that a proper capital injection was needed for Bankia and its plans were in danger of breaching an EU ban on “monetary financing,” or central bank funding of governments, according to two European officials

ECB's calling of the Spanish bluff also explains the earlier news of Ordonez' premature evacuation from the Bank of Spain, which we noted:

News of the ECB’s hardline response emerged as the Bank of Spain announced that Miguel Angel Fernández Ordóñez, its governor, would step down at the end of next week, a month earlier than planned. Mr Fernández Ordóñez – known by his initials Mafo, who was appointed by Spain’s previous socialist government – has been subject to increasing attacks from politicians over his failure to prevent the country’s banking crisis.

In summary:

“This is like a game of poker now,” one government adviser said, “and I don’t think Spain is bluffing”.

Well, it is. Because its cards, as explained yesterday, are all merely collateral backed by zombie banks which carry their "assets" at idiotic valuations.

So yes - in the great game of monetary poker, the ECB just called Spain's bluff. Or maybe not. Because paradoxically this may all be simply a means to crash the market, as we have been cautioning since last week, when Citi, correctly, said that Crossover would cross over (pun intended) 1000 bps, before the central banks would get involved.

In other words: yes, it is a game of cards, but one which may well have Spain and the ECB on the same side of the table, and now both have checked to Ben Bernanke, who has 3 weeks to decide if the cost of bailing out Europe, and thus US banks, is worth the printing of another $1 trillion.

We can't wait to find out.

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Tue, 05/29/2012 - 17:03 | 2473388 Tsar Pointless
Tsar Pointless's picture

Should I panic or something?

Tue, 05/29/2012 - 17:05 | 2473394 SheepDog-One
SheepDog-One's picture

 I guess we have to wait until morning futures tell us what to think.

Tue, 05/29/2012 - 17:21 | 2473457 gatorengineer
gatorengineer's picture

futures only come in one color Dog, and thats green.....  The plunge protection team is nothing if not dilligent.

Tue, 05/29/2012 - 17:43 | 2473509 Rainman
Rainman's picture

Brian Sack has 30 days of voodoo mayhem left in him for sure.


Tue, 05/29/2012 - 18:17 | 2473588 The Big Ching-aso
The Big Ching-aso's picture



I hate to say this but it looks like the Mayans really knew their shit about 5,000 year calendars.

Tue, 05/29/2012 - 18:54 | 2473663 barliman
barliman's picture


... and they knew even more about 13,000 year galactic cycles.

Chew on that one for a while ...


Tue, 05/29/2012 - 19:15 | 2473700 Not Too Important
Not Too Important's picture

Weren't the Olmecs the smart ones?

And is that chew, or choom? If you're talking about chewing on a Mayan, I'll need my bath salts first.

Tue, 05/29/2012 - 22:39 | 2474051 Dr. Richard Head
Dr. Richard Head's picture

The Galactic Ferderation of light has some interesting insight http://www.youtube.com/watch?v=B7qFlyiOSq8

Wed, 05/30/2012 - 00:37 | 2474214 Oh regional Indian
Oh regional Indian's picture

Haaaah! Never thought I'd see that posted by anyone here.

Trip out...duuuuuude.... but good stuff. I'd highly recommend all barnacled old farts here to check it out!!! Awesome stuff Dr. H.

Meanwhile, anyone who is a Motorcyclist/Enthusiast, do dive in below and tell me why?



Wed, 05/30/2012 - 03:45 | 2474417 Michael
Michael's picture

It's not going to be pretty, but I think we'll get through it together.

Wed, 05/30/2012 - 05:40 | 2474526 Oh regional Indian
Oh regional Indian's picture

Indeed Michael. 

How do you feel about Romney's slightly pre-mature announcement?

And Jeb Bush carefully considerign a potential VP spot.

Another Bush VP will be like a bad dream, recurring.


Wed, 05/30/2012 - 05:39 | 2474525 css1971
css1971's picture

Google: Countersteering and "steering dampers" in the context of motorcycles.

Wed, 05/30/2012 - 05:41 | 2474544 Oh regional Indian
Oh regional Indian's picture

Thanks css, that was particulary in the Indian context, where the bikes are very much a 1960's design with pretty skin, fenders, seats, forward rake (all style no substance) et. al.


Wed, 05/30/2012 - 02:26 | 2474364 Bruce Flea
Bruce Flea's picture


Tue, 05/29/2012 - 20:31 | 2473858 Harbanger
Harbanger's picture

Hey big ching asshoe, you should really know better than to say "the mayans really knew".  So I won't junk you now, but don't be surprised when I ream you and your comments in the future.

Tue, 05/29/2012 - 23:42 | 2474141 Davalicious
Davalicious's picture

Don't hurt him, big guy!

Tue, 05/29/2012 - 23:57 | 2474160 Harbanger
Harbanger's picture

R U kiddin?  I love The Big Ching-aso.  He can take it and dole it back.  Sharpens his skills, he's no dummy.

Tue, 05/29/2012 - 20:24 | 2473848 philipat
philipat's picture

Why do we continue to have to bail out every insolvent Bank?

Tue, 05/29/2012 - 22:32 | 2474037 Cosimo de Medici
Cosimo de Medici's picture


Tue, 05/29/2012 - 23:44 | 2474146 Real Money Wins
Real Money Wins's picture

Because it's easy, you just turn on the press's and print another trillion in counterfiet fiat. It doesn't hurt the 1% just the 99% who have to pay for it and they can't be too pissed off about it cause they don't do anything about it.


So it's Uncle Benny to the rescue with another helicopter of QE cash!!!!


"and it's fried rice you plick"

Wed, 05/30/2012 - 02:52 | 2474376 FlyoverCountryS...
FlyoverCountrySchmuck's picture


Haven't you heard that THE MEDIA MESSIAH has saved MILLIONS of jobs, and spent LESS money than all previous Presidents?

MSNBC/NBC told me, so it just HAS to be the truth, right?


Just think of how many MORE jobs the Messiah Obama could save by Printing only a trillion dollars more!

Wed, 05/30/2012 - 05:27 | 2474487 HungrySeagull
HungrySeagull's picture

That too shall pass.

But... but... but... 4 more years? ugh.

Wed, 05/30/2012 - 01:21 | 2474271 Al Gorerhythm
Al Gorerhythm's picture

You'd think the people would wake up to this, but no.


Obamney just won the required delegates in RP's home state.

Oh, and more importantly, Kim Kardashinin has new boots.

Goodnight Irene!

Wed, 05/30/2012 - 06:18 | 2474587 tonyw
tonyw's picture

"I guess we have to wait until morning futures tell us what to think."

If you'd prefer not to wait I'll tell you what to think and do.

Or maybe you could ask those in the second twin tower how it worked out for them, ... no you can't coz they're still waiting for the call.

Think for yourself but don't think you're infallible.

Think if the future of all human civilisation depended on me, what would I do, how would I be?
Did I do all that I could?


Tue, 05/29/2012 - 18:11 | 2473570 Joshua_D
Joshua_D's picture

Don't Panic.

Tue, 05/29/2012 - 18:37 | 2473641 GOSPLAN HERO
GOSPLAN HERO's picture

Central planners have this situation under control.

Muhahahahahahahahahahahahah ... Muhahahahahahahahahahahahaha!

Tue, 05/29/2012 - 19:30 | 2473729 Everyman
Everyman's picture

I think you should "or something".

Tue, 05/29/2012 - 19:36 | 2473738 Buck Johnson
Buck Johnson's picture

He's correct, they are trying to tell the US they have no viable plan and no money.  The only people that could "help" is the US bailing out parts of Europe.  Essentially it's another bluff but this time it's with the ECB and Spain against the US.  Is the pain of an imploded EU and currency better than a bailout of another Trillion.  I bet the bankers will get them to bail out the ECB to that amount.  Because they are tied up with the EU countries to the tune of trillions.

Wed, 05/30/2012 - 02:57 | 2474381 FlyoverCountryS...
FlyoverCountrySchmuck's picture

Frankly, it's a damn good bluff, since it's an Election Year, and the Euros can clearly see that Obama has no hesitation whatsoever spending trillions in taxpayer money to save his 2012 arse.

Tue, 05/29/2012 - 20:43 | 2473882 Ineverslice
Ineverslice's picture

You gonna bet one chip or two chips Ray?

Tue, 05/29/2012 - 21:10 | 2473921 THECOMINGDEPRESSION
I'm serious Submitted by Turd Ferguson on May 29, 2012 - 8:43pm. MODERATOR
Hat Tip!





Turd flake is in a DREAM WORLD! HAHAHAHA! Gettin' funnier by the post over there!

Tue, 05/29/2012 - 22:39 | 2474049 ElvisDog
ElvisDog's picture

My instant reaction to the latest ECB pronouncement: zzzzzzzz. More blah-blah-blah, threatening tough talk, blah-blah-blah. Just fucking do something definitive already instead of talking us all to death.

Wed, 05/30/2012 - 02:30 | 2474368 Terra-Firma
Terra-Firma's picture

Don't panic, change is possible.

How did a $774-million hole in the city’s operating budget become a $90-million surplus?

Toronto is expected to finish the year with $90-million to spare. Just a year ago, Mayor Rob Ford’s administration was issuing dire warnings about the need to cut costs in order to plug a $774-million funding shortfall in the city’s 2012 budget.


Tue, 05/29/2012 - 17:04 | 2473389 SheepDog-One
SheepDog-One's picture

Even if Ben prints '$1 trillion', everyone knows it solves nothing and lasts maybe a few weeks....so then what?

Tue, 05/29/2012 - 17:06 | 2473397 mayhem_korner
mayhem_korner's picture



"Everyone" except the 1/2 of the world population riding the choomwagon...

Tue, 05/29/2012 - 18:26 | 2473611 bjfish
bjfish's picture

I resent that.  There is nothing wrong with the choomwagon ... plenty of bright, energetic, thinking ppl on that train,  Shiiit, I think I was the conductor once.

That 1/2 the population sleep walks thru life in an unthinking stupor is not in dispute.  But pick another reason for why - 'cuz ur's don't fly.


Tue, 05/29/2012 - 22:33 | 2474040 Cosimo de Medici
Cosimo de Medici's picture

One half of the population sleep walks thru life in an unthinking stupor, and the other half thinks it doesn't.

Wed, 05/30/2012 - 06:22 | 2474591 tonyw
tonyw's picture
Some people make things happen, some watch things happen, while others wonder what has happened
Tue, 05/29/2012 - 22:00 | 2473997 potlatch
potlatch's picture


I would *dream* for a world where, at any given time, half of the population was be-choomed.

We could then switch shifts.




Wed, 05/30/2012 - 00:46 | 2474237 Al Gorerhythm
Al Gorerhythm's picture

That fucker is still stoned.

Tue, 05/29/2012 - 17:06 | 2473399 EscapeKey
EscapeKey's picture

Then, next month we print $1.1tn thereby solving the problem once and for all.

Tue, 05/29/2012 - 17:08 | 2473405 SheepDog-One
SheepDog-One's picture

So what we're banking on here is 1 QE, then another? Dare I ask.....'what then?'

Tue, 05/29/2012 - 17:09 | 2473412 EscapeKey
EscapeKey's picture

Why do you ask questions you already answered yourself?

Tue, 05/29/2012 - 17:11 | 2473419 SheepDog-One
SheepDog-One's picture

Just wonderin. So the magic formula is '2 more QE's'... ok got it.

Tue, 05/29/2012 - 17:13 | 2473424 EscapeKey
EscapeKey's picture

Some get paid fortunes for code such as this:



Tue, 05/29/2012 - 17:15 | 2473438 Captain Benny
Captain Benny's picture

Please - Nobody tell Bernanke that the number one always evaluates to true.  We'll keep it our little scientific secret.

Tue, 05/29/2012 - 17:35 | 2473495 xela2200
xela2200's picture


Tue, 05/29/2012 - 17:38 | 2473502 EscapeKey
EscapeKey's picture

You can't assign 1 to an immediate left value!

Tue, 05/29/2012 - 18:35 | 2473637 razorthin
razorthin's picture

dim one int

one = 1


Tue, 05/29/2012 - 19:20 | 2473697 Dead Canary
Dead Canary's picture


10 * loop



   IF bernank.pulls.head.out.of.ass = true THEN GOTO 20


20 * exit


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